CFO Report Finance and Audit Committee March 19, 2020 Purpose of - - PowerPoint PPT Presentation

CFO Report

Finance and Audit Committee March 19, 2020

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Purpose of this report:

• 2019 Financial Performance (Q4 Financial Performance

and Asset Liability Management Reports)

• Spring Financial Plan Update
• Economic and Financial Impacts of COVID-19
• 2020 Audit Schedule

2019 Financial Performance Report

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• 1. Tax revenues 104% of budget
• 2. Fare revenue 95% of budget due to lower ridership

comparing to budget across all modes

• 3. Project spending 82% of budget mainly due to

delays in project approvals and ramp-up of construction

• 4. Transit operating expense at 97% of budget

Key Takeaways for 2019

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Spring Financial Plan update

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Financial Projections 2017-2041 Board- Adopted Financial Policies Program Costs from Engineers’ Estimates Key Planning Assumptions

(Minor Updates)

Independent Revenue and Inflation Forecasts Budget and Financials

(2019 Actuals)

Long-range financial plan update

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• 1. 2019 revenues and expenditures did not

have material impact on the current long term financial forecasts

• 2. Economic conditions have changed

drastically in the past weeks. High uncertainty on economic outlook due to recent social and market developments

Key Takeaways for Current FP Update

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Economic and financial impacts of COVID-19

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COVID-19 has caused significant financial market volatility.

• 11 year bull market ended on 3/12, steepest one day decline on 3/16

since 1987. 10-year Treasury yield drops below 1% for the first time in history.

• Federal Reserve cut rates to zero and launched a massive $700 billion

quantitative easing program.

Economists across the country now predict a coronavirus- driven recession, some believe the US is likely already in a recession.

General Market Updates

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• In the near term, supply chain disruption could negatively

affect schedule and cost of current projects

• In the intermediate term, a potential recession that leads

to loss of revenues and financial capacity could jeopardize the affordability of the voter-approved program

Financial Impact on Sound Transit – Program Delivery

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• Taxes fund 66% of voter approved program (2017-2041)
• 52.2% Sales Tax
• 8.6% MVET
• 5.0% Property Tax
• 0.1% Rental Car Tax
• Debt funds 15% of voter approved program (2017-2041)
• Debt capacity is defined by availability of future revenues (all

pledged taxes) and growth of Assessed Value of properties (property value and tax)

A potential recession would threaten 81%

• f the program funding sources

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• Scenario 1: Mild recession similar to 2002 dot com recession
• Scenario 2: Severe recession similar to 2008 great recession

Potential Impact on Program Affordability

Debt Capacity

$- $5 $10 $15 $20 $25 $30 $35 $40 $45

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041

Billions of YOE$

Debt Capacity - Fall 2019 vs Recession Scenarios

Principal Balance as Forecasted in Fall 2019 Principal Balance as Forecasted with Dot Com Recession Principal Balance as Forecasted with Great Recession Debt Capacity as Forecasted in Fall 2019

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• The program will not be able to benefit from the current

interest rate environment as the access to capital market is extremely limited and premiums are priced in for all securities with the exception of Treasury bonds.

• Investment returns will be significantly lower
• Lower farebox revenue due to steep drop in ridership

Financial Impact on Sound Transit –

• ther funding sources and revenues

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• Ridership decline as of March 16 over February ridership

System Total: -69% Link: -69% ST Express (all partners): -70% Sounder: -72% Tacoma Link: -62%

Impact on ST Ridership

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• Fare revenue loss: Assuming the steep ridership declines last until

June with a ramp back up over time, boardings would be 35% under budget and fare revenue would be 26% under budget for 2020

• Forecasted 2020 Farebox recovery ratio could be below policy

target for all models

Impact on ST Fare Revenue and Farebox Recovery

Mode Policy 2019 Actuals 2020 Forecast Link 40% 34% 23% ST Express 20% 25% 18% Sounder 23% 31% 22%

2020 Audit Schedule

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Compliance Audits:

• ORCA Audit
• National Transit Database Audit
• Subarea Audit

Accountability Audits:

• State Auditor’s Office Financial

Audit Review Financial Statement Audits:

• Financial Statement & Single Audit

(A-133)

Audits facilitated by the Finance Dept.

Q1 Q2 Q3 Q4    Q1 Q2 Q3 Q4  Q1 Q2 Q3 Q4 

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Performance Audits:

• Workforce Performance

Management

• Oversight and Management of

Sound Transit Projects

• Construction Performance Metrics

Management Internal Audit Divsion Audits:

• Audits in Internal Audit work plan

Audits facilitated by Internal Audit

Q1 Q2 Q3 Q4    Q1 Q2 Q3 Q4    

Thank you.

soundtransit.org